Utilities Looking to Recover Costs of Post-Sandy Recovery

Price to restore essential services may top $1 billion, state agency weighs costs appropriate to pass on to customers.

The state is expected to initiate a proceeding to decide how utilities in New Jersey recover the enormous costs imposed by restoring essential services like electricity, gas, and water in the wake of Hurricane Sandy.

The New Jersey Board of Utilities yesterday said it sought to establish an appropriate cost-recovery mechanism for expenses incurred by the utilities in responding to the superstorm.

How it would work is uncertain, but the costs imposed by the storms are huge. Public Service & Electric Gas executives said they could run between $250 million and $300 million.

Other utilities spent more than the state’s largest electric utility. Jersey Central Power & Light, the state’s second-biggest electric company with 1 million customers, projects its Sandy expenses at $500 million.

The issue is critical to utilities and consumers because both the state and the industry are looking for ways to improve the reliability and resiliency of the power grid, objectives that will not be achieved without increasing costs to consumers and businesses.

In the new proceeding, BPU President Bob Hanna said the agency will take up what kinds of appropriate cost-recovery mechanisms should be passed on to customers.

BPU Commissioner Jeanne Fox agreed. She said it was important to vet the expenses incurred by the state’s utilities and to determine which were prudent.

“Clearly, this is, in my mind, a part of climate mitigation,’’ Fox said at the agency’s monthly meeting. “The country and the world has to adapt to that change.’’

This process is being played out at the same time the agency is weighing requests by utilities to upgrade their power grids to prevent the type of widespread outages that occurred during the hurricane, which left millions of customers without power, some for a week or more.

It also coincides with a new rate-base case involving JCP&L, a utility often subject to severe criticism from regulatory officials over reliability issues. The state’s Division of Rate Counsel has contended that the utility is earning more than regulators have approved.

The impending rate cases are likely to intensify opposition to any increases in electric rates, which industry executives often say rank among the highest in the nation.

It is uncertain how those issues will play out while the BPU weighs improving reliability in the power grid and the costs those upgrades will entail.